EU eases strict fiscal rules amid crisis

The European Union is relaxing its strict fiscal rules so member states can invest as needed during the coronavirus crisis.

"Today - and this is new and never done before - we trigger the general escape clause," European Commission President Ursula von der Leyen said in a video posted on Twitter.

"That means national governments can pump into the economy as much as they need. We are relaxing the budgetary rules to enable them to do that," she adds.

The decision - which requires the formal approval of EU member states - has already been welcomed by the bloc's finance ministers and leaders, commission spokeswoman Marta Wieczorek said earlier.

Under the EU's stability and growth pact, member states must keep their debt and deficit levels in check.

The rules were tightened in the wake of the financial crisis that hit Europe in 2009, in order to safeguard the bloc's economic health.

Government deficits should stay within 3 per cent of gross domestic product while debt should not rise above 60 per cent of GDP.

Even in economic crises, member states should show they are trying to reach those targets.

These rules are now being suspended to tackle the potentially devastating economic consequences of the coronavirus crisis, which could be much more severe for the EU than initially thought, the commission said late Friday.

The decline in economic output in 2020 could be comparable to the downturn in 2009, the worst year of the economic crisis.

At that time, the economy shrank by 4.3 per cent in the EU and by 4.5 per cent in the eurozone.

EU states were already granted significant flexibility under the bloc's fiscal and state aid rules, but activating the escape clause offers governments even greater spending leeway.

In addition, the European Central Bank announced a 750-billion-euro emergency bond-buying programme on Wednesday.